Assessing Risk

Question 1

Strategy/Considerations in Engagement Planning

Answer 1

Analyze prelim Analytic procedures
Assess Risk (timing, nature, extent)
Objectives
Factors (HR)
Ident characteristics & scope (report type)

Question 2

Prelim Engagement Planning (Program) Activities

Answer 2

QC & independence
Specialist
Document corrobative findings
Knowledge to accomplish objectives

Question 3

Engagement Planning (Program)

Answer 3

Risk assessment & understanding entity enviroment

Question 4

Engagement IC Elements (components)

Answer 4

Monitoring
Risk Assessment
Control Enviro
Control activities
Info & communication

Question 5

Audit documented at

Answer 5

Strategy
Program/plan
Changes

Question 6

Materiality

Answer 6

amount missing/misstated influences decision

‘Big enough to matter’

Question 7

Materiality documented

Answer 7

F/S
Acct balance (performance)
Revisions

Question 8

Material Levels

Answer 8

General - Equity 1%, Assets 2%, N/I 5-10%
Performance - % set lower than General
Lower risk uncorrected misst

Tolerance - $ amount determined by Auditor
If found and diff is below Tolerance, F/S not impacted

Question 9

Engagement Pre-Conditions

Answer 9

Determine if Frameowork acceptable

Question 10

Rep Letter

Answer 10

Date- Auditor's report
Fair- F/S, I/C, Assumptions
Immaterial errors
Litigation discl
Access
No Mgmt fraud

Question 11

Engagement Letter

Answer 11

Obj & Scope
Responsibilities - Mgmt & Auditor
Limitations- missing & misst
ID framework
Form & Content reference

Question 12

Engagement docs requirements & considerations

Answer 12

Nature, timing & extent
Results & conclusions
Issues & evidence

Consider- Who performed & date
Who reviewed & date
Characteristics

Question 13

Final Report Date workpaper issue

Answer 13

Workpapers not later than 60 days & maintain for 5 years

Question 14

Dual Date Report

Answer 14

Responsible for specific events after fieldwork complete

Question 15

Management Communication of audit

Answer 15

1) Overview- avoid details’
2) Address risks- Significant Def, Material Weekness, Substantive Risk
3) Opinion F/S- not effective I/C

Question 16

Significant Deficiency
Material Weekness
Substantive Risk

Answer 16

I/C does not prevent/detect- correct misst
Control def- reasonable possibility of material misst
Intentional missapropriation- Audit cannot be performed

Question 17

Component Auditor’s requirements

Answer 17

Independence 
Financial info
Findings/opinion
Signif risks
Related parties
Compliance if audit not restricted

Question 18

Firm QC

Answer 18

Auditing, accounting & review svcs (meet prof standards)
Human res
Leadership
Relevant ethics
Accept & continue engagment
Performance
Monitoring

Question 19

Assess Risk Material Misstatement

Answer 19

*Determines level of Detection Risk&raquo_space; DR Determines nature, timing, extent

Identify
Magnitude
Relate
Consider liklihood of Material Misst

Question 20

Fraud Types

Answer 20

Missapropriation
IC Override
Fraudulent F/S

Question 21

Communication of Fraud

Answer 21

Govern- mgmt involved & material misst
Audit Comm- Disagree w/ Mgmt & Significant findings
1 Level Mgmt- Finding; No material misst
Outside Party- Subpheona
SEC client auditor change
Standards req
Auth communication w/ prior Auditor

Question 22

Entity Risk levels

Answer 22

Internal- Governance
               Object/Strat
               Policies
               Finance struct
               Investment
                Nature ops

External- Industry & regulatory

Question 23

Substance over Form

Answer 23

Substance- analytics & test of details

Form- test of controls

Question 24

Internal Controls

Answer 24

process effected by Mgmt design that provide Reasonable Assurance about F/S, Ops & Compliance

Question 25

Risk Assessment process

Answer 25

``` Inspect Inquire Observe Confirm Analyze Recalc ```

Question 26

Required & Not Required Procedures

Answer 26

``` Not- Tests of controls Search Signif Def Suitability to prevent, detect, correct Req- Assess Control Risk below max Basis Understanding of I/C elements ```

Question 27

Svc Organizational Report (SOC)

Answer 27

Type 1- Effective Control > Discl of Opinion | Type 2- Expectation of Controls > Sys & Design , Ops effectivness

Question 28

IT Controls

Answer 28

General- IT sys parts | Application- IT sys tasks

Question 29

GAAS underlying principle

Answer 29

Materiality & Audit Risk

Question 30

Assess Risk

Answer 30

Nature Timing Extent

Question 31

Specialist

Answer 31

Objective & scope Client relationships understanding of Auditor's use

Question 32

Analytical Proc Efficiency & Effectiveness factors

Answer 32

Nature Plausibility & predictability Availability & reliability Precision

Question 33

Compensating control

Answer 33

Lessens severity of deficiencies (significant & material)

Question 34

Assessment of Control Risk

Answer 34

performed concurrently during audit w/ understanding of I/C

Question 35

Assessed level of RMM determines

Answer 35

Level of Detection Risk > Determine Assessed Risk (nature, timing, extent) of Audit proc > Detect Material Misstatement

Question 36

Incremental Audit Risk

Answer 36

Interim F/S- audit risk increases as time between tests and YE increases